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REPLACEMENT OF GOODS

Manish (Service) (61 Points)

11 January 2008

I Want to know in case of replacement of goods whether Vat is payable when the goods are replaced against the Expired goods taken back from the Distributors.

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7 Replies

CA. O.P. Agarwalla (C.A.) (2916 Points)
Replied 12 January 2008

This is really very interesting question. I would like to have a thorough discussion on this subject. To begin with, I would like to quote the reply of MVAT deptt- Maharashtra on a similar point. Question:- We receive goods back from customers for which we issue credit note for value. We intend to issue piece to piece for replacement of goods with zero value. The goods received back are not saleable and are destroyed. The replaced goods are out of fresh stock on which we have taken input tax credit. Will it be necessary to reverse the credit for the goods given as replacement having zero value ? Answer:- yes you have to reverse the input tax credit as goods will not be sold and will be destroyed. The issue is still open and I invite other opinions on this issue.

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Manish (Service) (61 Points)
Replied 13 January 2008

Some People have replied me Saying Replacement of Goods is not sales at all hence Not a Taxabl transcation at all......My other view is VAT is trying to Avoid cascading effect hence If Replaced goods would be taxed Twice It would amount to be Double Taxation of the Same goods as Expired goods had not been ultimately consumed by final consumer & when First time when sale took place we had already paid tax at teh time of First sale...so Taxing It again would not be justified.....Do u think my view holds good?

JASRAJ GREWAL (Service) (26 Points)
Replied 23 May 2009

Can replacement of goods be done under the VAT laws (other than the Sales Return route)

Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 24 May 2009

The VAT is charged on transfer of propeprty and is based on the value at which the goods are supplied.

Therefore if you are repalcing an item which costs 50,000/- for free then the VAT payable is zero. You should indicate that the same is a replacement.

The manufacturers would have topay excise duty on the same as the tax is payable on removal.

JASRAJ GREWAL (Service) (26 Points)
Replied 24 May 2009

Agree that no VAT is payable, what about the documentation -- most of the VAT Acts in India have system of debit and credit notes.

When there is replacement of goods how would the documentation work ?

Does one issue a tax invoice at NIL Value with a note that it is a Free replacement ? Many States require a delivery challan to accompany the goods, how would the same be issued?

How would be the stock accounted for in the Returns / Assessment ?

Can the replacement be segregated as : Sale Return and a Free issue ?

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AVINASH DAGLIYA (business) (24 Points)
Replied 20 March 2010

Sir,

I would like to understand one aspect-

I have purchased goods from manufacturer at let us say Rs.100 + Rs.4 vat. I have taken the credit for rs.4.00 as VAt input credit.

For some reason i return back the stocks to the supplier after a 1 year back . As per VAT act, goods returned beyond 6 months, the vat cannot be reversed. Now, what happens to the input credit of Rs.4/- standing in my books. Should I reverse it without claiming from sales tax department or can i utilise it for any other sale transaction. Since the transaction are in different months, it may not be possible to link up evry input tax credit to utilisation for output tax. So, over a period could this Rs.4/- input tax credit available with me result in refund?

Please clarify.